Recession Forecast UK recession forecast put at 50-50

Britain now faces a 50-50 chance of a recession next year amid the "toxic combination" of a housing market slump and the fallout from the credit crunch, experts have warned.

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The chilling warning underlines the severity of the downturn facing the UK in the coming months. Economists at investment bank Dresdner Kleinwort said the economy faced a major slowdown in the next year, with the worst pain likely to be felt in the first three months of the year.
The bank's chief European economist David Owen said: "We are looking at a toxic combination of headwinds facing the economy.
"The chances of a recession in the UK next year are close to 50pc - as they are in the US."
It comes amid growing evidence that the property market is facing its sharpest falls since the last crash in the early 1990s.
The Monetary Policy Committee cut borrowing costs earlier this month, warning that the economy faces a sharp slowdown next year. The stock market had another bad day with the FTSE 100 falling 119.2 to 6277.8 as traders bet the effects of the credit crunch will worsen in the coming months.
The bank's warning is among the most severe from a major City forecaster.
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Mr Owen said that, although he was forecasting growth of 1.8pc over 2008, most of the risks were on the negative side, and that it was quite feasible that there could be two successive quarters of negative growth - the strict definition of a recession.

He warned that the prime reason for a slump was an expected fall in house prices, which, according to Halifax, have now fallen consecutively for the past three months.
"The last time the Halifax house price index was dropping like this was back in 1995, when the housing market was just getting going after the last crash," said Mr Owen. "I'm no longer comfortable with this view that the housing market can just tread water for a few years. What's much more likely is that there will be outright falls in house prices - probably of 5pc-10pc."
He said that there had been four major peaks in house prices and affordability in the post-war period - the late 1940s, 1973, 1989 and, now 2007. "After each of the first three peaks in this post-war period, values dropped by 30pc in real terms. In the 1950s, house prices fell for 10 consecutive years. There is always a severe correction following a bubble."
"I don't think it will be on that scale this time, though it is certainly a possibility."
Bank of England governor Mervyn King is expected to be grilled on the prospects for the economy at his appearance before the Treasury Select Committee today.
Mr King will also be questioned on the increasing difficulty facing the MPC in bringing money market rates back into line with its official base rate.
Dresdner said that, while the prospects for the UK are dim, there are similar troubles on the other side of the Atlantic, where the chances of recession in the coming year are marginally higher.

Dresdner's chief economist Ian Harwood warned that the US housing market crash would last for longer than most economists currently expect.

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